Ceo Exchange Transcript Episode 407

7/31/2019 Ceo Exchange Transcript Episode 407

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CEO EXCHANGE PROGRAM #407 TRANSCRIPT

DOWN ON MAIN STREET: The Bank and the Drugstore in the 21st

Century

FEATURING KENNETH D. LEWIS AND THOMAS M. RYAN

TAPED ON APRIL 12, 2006 AT THE HOWARD UNIVERSITY SCHOOL OF

BUSINESS IN WASHINGTON, DC

TEASE

Main Street USA: these days, the bank, the drugstore, most likely owned by a huge

conglomerate. But CEOs say they can blend down home values with modern day

trends. From the Howard University School of Business in Washington, DC, Bank of

Americas Ken Lewis, Leaders have to demonstrate that they will do what they ask

others to do, and Tom Ryan of CVS, were trying to help seniors. Were training

our pharmacists. Thats next on CEO Exchange.

SPONSOR SPOT

Funding for CEO Exchange is provided by SHRM (the Society for Human Resource

Management). In todays knowledge-based economy, the nature of work haschanged. Once driven by materials and machines, success is now powered by people.

Competitive strength is no longer only tied to physical resources, but upon workforce

talents. SHRM believes that the power of people is not a cost to be managed, but an

asset to be leveraged.

OPEN

One world, many ideas, inspiring the next generation, shaping trends and forging the

future, ideas that change the way we live. CEO Exchange. And now your host, Jeff

Greenfield.

JEFF GREENFIELD

Hi. Thank you very much. And welcome to CEO Exchange. Im Jeff Greenfield. I

want you to picture, if you will, just about any town or city in America. Even if there

is no traffic light on Main Street, there probably are two types of businesses: a bank

and a drugstore. But our guests today do not run the corner drugstore or the friendly

mom and pop bank you might remember fromIts a Wonderful Life. That would be a


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CEO Exchange Episode 407

little bit like calling Exxon Mobil a gas station. Actually, both of these companies

that are with us today have followed the mantra, bigger is better. And our two CEO

guests have played a major role in their expansion.

Their companies offer so many products and services that they barely even look like

the bank or drugstore of a couple of decades ago. One more significant link, the

future well-being of both companies is bound up with two of the biggest, most

complex concerns of our time: for one of them, the cost and availability of healthcare

and for the other, the financial and economic health of the nation.

CVS, borne as Consumer Value Stores, has more drugstores and fills more

prescriptions than any company in the United States and that is welcome news to its

CEO, a former pharmacist himself, whose strategic blending of growth and customer

friendly service proved to be the right prescription for success. Were going to be

talking with Tom Ryan, Chairman, President and CEO of CVS in just a couple ofminutes.

But first, Bank of America., who seems determined to live up to its name. With

nearly 6,000 branches all across the country, Bank of America has more customers

than any other bank. It holds nearly 10% of all U.S. deposits. By growing up in a

blue collar home in the deep South, CEO Ken Lewis, not only learned the value of a

buck, but also the value of people of all backgrounds, who work hard for their money.

KENNETH LEWIS BACKGROUND PACKAGE

JEFF FLOCK, CEO EXCHANGE

Did you envision a room like this when you joined this company 37 years ago?

KEN LEWIS

No, I cant say that I did. I, I wish I could say that.

JEFF FLOCK

Ken Lewis gives us a tour of the vast Bank of America trading floor at their Charlotte

Corporate Headquarters. Hundreds of employees, phones to their ears, tapping

keyboards, making money for the nations second largest bank.

Are people nervous here now that youre walking through?

KEN LEWIS

I, I just may maybe a little.

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JEFF FLOCKLewis is known by B of As 176,000 employees, particularly the ones who surroundus here, as tough, no-nonsense, no excuses.

You have a reputation of expecting performance. You dont tolerate people who

dont come up to the standard.

KEN LEWISNo, thats and, and thats not because Im a bad guy.

JEFF FLOCKDid anyone say that?

KEN LEWISNo, no, but

JEFF FLOCKThe truth is, that as tiny North Carolina National Bank grew into the behemoth Bankof America, some saw Lewis as a ruthless cost and job cutter.

HUGH McCOLL, FORMER BANK OF AMERICA CEOHe was a man and is a man that when you gave him a job, he got it done.

JEFF FLOCKHugh McColl, the retired Chairman and CEO who created the modern Bank ofAmerica, spotted the former credit analyst early, and tapped him to make acquisitionswork. Like the time he asked Lewis to run new operations in Florida.

HUGH McCOLLI said, when can you go, and he said, When youre through talking to me.

JEFF FLOCKWhere does that come from? Not everybody has that attitude, you know?

KEN LEWISThere is, you know, an inner competitiveness and I, I dont know exactly who thatcame from, but I have it.

JEFF FLOCKCan I suggest your mother?

KEN LEWISI would, if I had to guess, that would be a pretty driving force.

JEFF FLOCKShe was a nurse.

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KEN LEWISShe was a registered nurse, yeah.

JEFF FLOCK

A single mother, who raised Lewis and his sister in Meridian, Mississippi, workeddouble shifts and set high standards. Like the time the now 59-year-old Lewis toldher, he had been made a Corporate Officer.

KEN LEWISThe first thing she said was, Well how far away is that from President? I assumedshe meant of the company.

JEFF FLOCKHe got that job in 1999, became CEO in 2001 and kept acquiring: MBNA last yearand Fleet the year before for more than $80 billion dollars. Taking on his New York

competitors on their northeast home turf, and making Bank of America the biggestconsumer bank in America. Nearly 6,000 branches, 16,000+ ATMs.

This is the second largest trading floor of its kind in the country. The people you seehere arent on the phone with Bank of Americas 50 million consumer customers.Theyre on the phone with the institutions and this is the area of the business that KenLewis really wants to see B of A grow..MARA DER HOVANESIAN, BUSINESS WEEKPart of the problem is that again, with Bank of America, its an American bank, itsU.S.-based and it doesnt have a broad I mean it doesnt have a global reach.

JEFF FLOCKLewis is working on that, buying nearly a quarter of a Mexican bank, hoping to growalready strong relationships with a Hispanic market in the U.S. and taking a 10%stake in the China Construction Bank.

MARA DER HOVANESIANI think theres a lot of risk there and a lot of the analysts have said, "You know, whatis he doing?

JEFF FLOCK

Now you are a bad guy when it comes to competitors though, arent you?

KEN LEWISWell I hope so. I, I dont necessarily want any of them to like me. And I dont, Idont mind a little fear rising when they hear Bank of America.

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JEFF FLOCKLewis says he wants Bank of America to be the biggest and the best, not just the bestbank, but the best company in the world. His mother would be proud. For CEOExchange, Im Jeff Flock. in Charlotte, NC.

JEFF GREENFIELDLadies and gentlemen, please welcome the Chairman, President and CEO of Bank ofAmerica, Ken Lewis.

APPLAUSEJEFF GREENFIELDCome on up. Welcome

KEN LEWISThank you. Its good to be here.

JEFF GREENFIELDOne of the things that you have brought to the business is a certain sense ofcompetitive drive. Would that be a fair statement?

KEN LEWIS

Yeah. One of our core values is winning. (laughter)

JEFF GREENFIELDBut what interests me about that is, it seems in your case, that its not much of amystery where that competitive drive came from. In reading your biography, I mean,your mom seems to have been determined, you were raised, I guess, she raised you as

a single mother for most of your life. She was determined that you were goingsomeplace.

KEN LEWISYes, she was. And, and, and she, you know leaders have to demonstrate that theywill do what they ask others to do. And, and my mother was a registered nurse andworked double shifts most of my early life, and raising my sister and I. So, she wasdemonstrating some, you know, some work ethic there too. And therefore, as shedemanded of me, what can I say? She was you know, I saw it firsthand.

JEFF GREENFIELD

But I gather she was pretty clear that you were supposed to be on the top of thatpyramid, in whatever company in whatever job you took.

KEN LEWISShe did. And, I tell the story, Jeff, that when I became Officer at--back then it wascalled NCNB--and I called her and said, Mother, I just made Officer and she says,Well, how far away is that from President? (laughter) And I assumed at the timeshe meant president of the bank. (laughter)

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JEFF GREENFIELDWell, youre still young, you know, theres an open presidency in a couple of years.The other thing I dont in any way mean to compare what I went through with theres a genuinely hard scrabble background, but I remember vividly having a

terrible job one summer, deadening, 9 to 5, filing. Just, just killed the soul. And Iremember it, almost like Scarlett OHara in Gone with the Windwhen she shakes herfist at the sky and says, Ill never be hungry again. I actually consciouslyremember thinking, I dont care what it takes or how hard I have to work, Im nevergoing to have a job like this in my life. Im wondering, all the work you did, beforeyou were a teenager, whether it was door to door greeting cards, selling shoes, AlBundy taught us thats not the most wonderful job in the world (laughter). You knowhauling stuff out of freight cars. Did you consciously think to yourself, Im going toget somewhere in life where this is going to be a memory, not my future?

KEN LEWIS

Well, one of the very first jobs I did have was selling Christmas cards door to door,and actually it was door to door in a trailer park. And I learned right away, this is notwhat I want to do, and Im going to do lot better than this over time. So it thatimpression, and impressions youre talking about, really hit me very early in life.

JEFF GREENFIELDOne of the things that I think people are most curious about is how a CEO spends histime and what he focuses on. And I gather that, unlike some of your contemporaries,you spend a great deal of time focusing on whats called human resources. Why doyou do that?

KEN LEWISWell if I can just take care of that first step, that is, getting right people, keepingthem, letting them grow in the business, thats about 99% of my job.

JEFF GREENFIELDAnd when you, when you deal with this area, when you look for people who havewhatever quality you think is critical to getting everything else done, is there a magicbullet youre looking for?

KEN LEWISWe look for enthusiasm. You know, people had rather be around enthusiastic people

than cynical people. And so, that, many times that, that level of enthusiasm with thehard work, with the intellect, actually differentiates you as an individual from others.

JEFF GREENFIELDOne of the things that changed your life, I gather, was coming under the gaze I guess,of a kind of legendary banker--your mentor, I guess--Hugh McColl from NorthCarolina National Bank. Was that a happy, fortuitous accident? Or was it because he

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saw something in you, because of work that a specific job that you done and said,Ahh, I like that kid.

KEN LEWISWell, it, when I came to work for NCNB at the time, as a credit analyst, you aspired

to be in the National Division run by Hugh McColl, if you wanted to becomePresident some day. And so, it was that drive for me and that acknowledgment thatthat was the career path that you had to take to get to that other--that top job that itcaused me to want to go into the National Division, therefore my association withHugh over the years.

JEFF GREENFIELDHe seems to have imbued in new guys, a sense that you were the outsiders. Thatthere were people in New York and California in big office buildings that might notthink you were up to it, and that that was a spur for the competitive drive. Did ittake?

KEN LEWIS

Oh it did. And and some refer to it as kind of a chip on your shoulder, and I hate to

refer to it that way, because thats kind of negative but there was this sense that we

could conquer these worlds, just like the New York and Chicago and California banks

could and that we were just as good as they and had the the same kind of work ethic

and drive that they did. And as it turns out, we had more. Because we bought most of

them. (laughter)

JEFF GREENFIELD

To quote our current President, as he mockingly says this, he says one of his bigadvantages is when my opponents misunder-estimate me. (laughing) He knows hes

kidding. Did it help in a way?

KEN LEWIS

Yeah I think it did. I think over time, we had snuck up on a few people. It would be

hard to do that now, but I think thats the case.

JEFF GREENFIELD

One of the things you describe as one of the most, I guess, memorable moments of

your life, when you were in Atlanta, I think. You were there for the funeral of MartinLuther King, Jr. and you talk about that as a pretty defining moment. How?

KEN LEWIS

Well I was in school at the time, at Georgia State University and so I was a student.

And I was on the street when the mule-drawn casket came by and the people walking

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in the street and of course, that was just a vivid, vivid memory for me, or a picture for

me.

JEFF GREENFIELD

I dont mean to be too, you know, cause and effect, but your company has a pretty

good reputation, in fact, a terrific reputation in terms of diversity.

KEN LEWIS

I really cant claim that I began that effort and that commitment to diversity, because

it was there when I got there and in some ways, Im an example of that. Because I

didnt have wealthy parents. I didnt have an Ivy League degree and the company

allowed me to reach my full potential. And I felt like if they had done that for me,

then why would somebodys gender or the pigment of their skin, the color, why

would that cause somebody to not be able to succeed as well? And so I really, its real

personal with me.

JEFF GREENFIELD

Let me shift gears a bit to the more hard-nosed or at least basic business kind of

question. Your company is famous for bigger is better, size does matter, if I can put it

that way on PBS. Youve acquired (laughter) well its all right. Youve acquired

acquisition is the key strategy. In some of these acquisitions it has been the product

that a lot of people wind up being laid off. A couple of months ago, the CEO of

Valero, an energy company that was big in acquisition, proudly said, Weve never

laid anybody off. Is that as far as you can say, is it a necessity? Is it a brutal fact of

life in the business youre in?

KEN LEWIS

Its a brutal fact when there is over capacity. And in the banking industry, there still

is and has been for some time, over capacity.

JEFF GREENFIELD

When you found yourself in a position where there was a real edge. Im thinking

particularly of the acquisition of Bank of America and some tension between you

guys. As a CEO, do you picture yourself as somebody in a battle? Do you try to look

for common ground?

KEN LEWIS

Its all about communication and you just try to have some empathy and

understanding, because its not easy for that other person to be in the position that

theyre in. And one that you referred to, this was when Nations Bank bought the old

Bank of America and then moved the headquarters, took the name and moved the

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headquarters to Charlotte, North Carolina. And, you dont have to be very empathetic

at all to be empathetic to that and understand there are going to be some issues and

some feelings, and you have to work around them. And actually, the greatest example

of how that progresses, when I first did a town hall meeting, in Giannini Plaza, in San

Francisco, most of the people sitting in the arena werearms, you know the body

language was bad. They didnt laugh at my jokes. They (laughter) and it was a tough

one. The last time I was there and this is, you know, some time after, I walk in,

standing ovation. So you know its going to get better.

JEFF GREENFIELD

Before meeting our second guest, we want to take a couple of questions, as I

mentioned from some students here at Howard.

FROM THE AUDIENCE

Good afternoon. My name is Michelle [], Im a junior marketing major, HowardUniversity School of Business from Chicago, IL and I wanted to know how your

recent merger with MBNA is going to affect job opportunities, knowing that there is

a plan to cut approximately 6,000 jobs between both MBNA and Bank of America?

KEN LEWISWell remember, while that is true, we hire 50,000 people a year. And so, the firstthing well do is, well eliminate positions that arent filled and secondly, we willallow those that are affected to look around the company and post, and see if there isanother match for their skill set. So while 6,000 positions will be eliminated, youknow the less and less people that are affected the better, and we try very hard at that.

But having said that, were growing every single business segment that we have andwere building branches and were adding premiere bankers. Were addinginvestment bankers and so the company actually is growing employment, other thanthis one reduction because of the credit card combination.

JEFF GREENFIELDThank you. This is a major credit card company you have bought?

KEN LEWISCorrect. It makes us the largest credit card bank in the country, or the world for thatmatter.

JEFF GREENFIELDWell youll probably be repossessing some furniture of mine any day now. (Laughter)

Ken Lewis is going to be back with us shortly after we meet our second guest. For

now, Ken, thank you very much. Well see you in a couple of minutes. Dont go

away.

APPLAUSE

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JEFF GREENFIELDOur next guest also grew up in a blue collar family, and he thought he was doingpretty well when he became a pharmacist at CVS, little did he know. Just like KenLewis, Tom Ryans career took off when he caught the attention of a powerful

mentor, Stanley Goldstein, who founded CVS.

By acquiring chains like Eckert, and Save-On, Ryan CVS stores now reach across thecontinent and that raises this question: can a company that has grown so big, stillmake its customers feel that they come first?

THOMAS M. RYAN BACKGROUND PACKAGEHi, how are you? Good. How are you doing today? Tom Ryan and CVS havegrown up together. Originally known as Consumer Value Stores, CVS morphed froma small New England chain into the top retail pharmacy in the U.S. I always get arush when I go back to our pharmacies.

He started at CVS as a pharmacist, right after graduating from Pharmacy School atthe University of Rhode Island, where now theres a Ryan Center Basketball Arena.His early passion, growing up in New Jersey, was sports. I wanted to be MickeyMantle. I grew up a Yankee fan. Who doesnt want to be Mickey Mantle? Ryanplayed high school basketball and baseball, but he wasnt good enough to play at thecollege level. So he looked for other careers. I was a delivery driver for a localindependent pharmacy. And thats how I got into it. It turns out that career choicewas just what the doctor ordered. CVS co-founder Stanley Goldstein, gave him hisfirst big break.

WILLIAM SYMONDS BUSINESS WEEKThey actually had a vacancy in the pharmacy, the department there, and he was theacting head. And then he was doing such a great job, Mr. Goldstein asked why cantwe just make him the permanent director? And they said, Well hes too young.Hes only 29. He said, Well, hell grow into it.

By 1994, Ryan was CEO of the drugstore chain. He and Goldstein went on anacquisition spree. They bought out Revco Drugstores, then Ekert, and this year, Save-On and Osco Stores in Chicago and California. The result, CVS has quadrupled insize in just the past decade. Friends like real estate developer, Paul Choquette, sayRyan isnt likely to slow down either.

PAUL CHOQUETTE CHAIRMAN, GILBANE INC.I think hes one of those executives that never stops thinking about the business.When hes at leisure, when hes out to dinner, that brain is working all the time.Thinking about things that he can do to move that company ahead.

Ryan has had his challenges, such as a sharp drop in sales in 2001 that forced theclosing of more than 200 stores. CVS returned to health quickly, and now has more

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stores than Walgreens. But Walgreens makes more money with its focus on sellingmass merchandise, whereas 70% of CVSs sales are in the pharmacy. But whatsingle item is the biggest seller at CVS? Actually Hershey chocolate is our biggestselling item. Followed by Marlboro cigarettes. CVS just signed an agreement withthe State Attorneys General to work harder at preventing cigarette sales to minors.

Maybelline is hot. Ryan has made an intense study of his customers. And it turnsout that more than 80% of them are women.

CECI RODGERS, CEO EXCHANGEOne secret to CVSs success is narrowly targeting its products to three prototypewomen. Market research told Ryan they wanted lower shelves, wider aisles, and moreupscale products, like Lumene, a cosmetic from Finland.

Back at the pharmacy, robots dispense pills, so pharmacists can spend more of theirtime explaining the new Medicare program to senior citizens. My mother is 86 and I

said, what are you going to do? She says, well Im waiting to talk to you.

Even if customers can buy cheaper generic or Canadian drugs, Ryan isnt worried.After all, CVS started as Consumer Value Stores, and wound up having the last laughon most of its competitors. For CEO Exchange, Im Ceci Rodgers, in Wakefield,Rhode Island.

JEFF GREENFIELD

Ladies and gentlemen, please welcome the Chairman, President and CEO of CVS

Corporation, Mr. Tom Ryan.

APPLAUSEJEFF GREENFIELDI was remembering literally, just a half hour ago, this errant thought popped into mymind. When Bob Kerrey, the Senator from Nebraska was running for President, hewas meeting with a bunch of us journalists and he was a pharmacy major. And JohnChancellor, late of NBC News, asked Senator Kerrey, why were you a pharmacymajor? And Bob Kerrey, who has a wicked sense of humor said, John, it was the60s. (laughter) Now I suspect thats not your answer, but

TOM RYAN

Ill tell you, I will tell you this. I didnt inhale. (laughter)

APPLAUSE

JEFF GREENFIELD

Okay, so more seriously, why choose that?

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TOM RYAN

You know, I dont know. People ask me that question. I was good in math and

science and I worked in a drugstore as a delivery boy and I played basketball and

baseball and in the off season I worked as a delivery boy. And I kind of liked it and

he said, well he knew this place, the University of Rhode Island, and this was in New

Jersey and I went up there and looked at it and filed for early acceptance and next

thing I knew I was in pharmacy school.

JEFF GREENFIELD

But I think actually that is a very instructive story, because I hear from a lot of people

that the choices they made, sometimes didnt sit down and do careful calculations or

it wasnt necessarily a driving ambition. It just happened and

TOM RYANYeah, it doesnt. I mean Ill tell you a quick story about it because once I picked the

pharmacy, I think we might have pharmacy students here, but I was in my third yearof pharmacy school. At that time, it was five years and I was taking organicchemistry.

JEFF GREENFIELDOhhhh. (laughter)

TOM RYAN

Oooh (laughter) This we dont like. We dont like it. And was having a tough time

and I called my dad up, and once again he was down in New Jersey and I was in

Rhode Island, and I called him up and I said, Dad you know, Im not sure this whole

pharmacy thing is going to work out. And he said Well what are you thinking

about? And I said, Well, Im thinking about teaching. I think I could be a

teacher. And he said, Well, thats a noble profession and its a great profession, but

theres no sense you going up to Rhode Island. You can just come home and live

with your mother and I and go to Montclair State. (laughter). I said, Well, Ill get

back to you on that. (laughter) So I ended up sticking it out.

JEFF GREENFIELD

You go to work for CVS, and now its 32, 33 years later, and youre still there. Was

the grass never greener?

TOM RYAN

I was always happy in the job I was in. And I think thats the thing I always tell

young people coming up in our organization. I was never looking for the next job.

JEFF GREENFIELD

You werent?

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TOM RYAN

No, I was ambitious, and I knew I just didnt want to stay in that job, but I was

always focused on doing the best I could in my existing job and I was fortunate to be

in the right place at the right time. You know there is some of that luck obviously.

JEFF GREENFIELD

Was meeting Stanley Goldstein

TOM RYAN

Yes. Well at this time I was 29 and we had just started the pharmacy business at CVS

really. So they were going out searching for a maven with gray hair to head this

pharmacy business up. And I guess they had someone from Eli Lilly actually, and he

turned them down at the last minute and so, Stanley said to my boss, who at that time,

was running store operations, said, Whos that kid, Ryan, you got over there? Andhe said, Well hes as green as something, I wont repeat it. And he said Well lets

give him a try.

JEFF GREENFIELD

As you were moving up, did you look across and see people who you regarded as

potential competitors for the next step up? Was that ever part of how a young person

rising in the business thinks?

TOM RYAN

Thats natural, yeah. I think its healthy. You know, you should be ambitious. Youshould be ambitious. You should take the initiative and at the end of the day, we talk

about CVS, how you get ahead at CVS. We call it WIRED. Everything has to have an

acronym in business it seems, but ours is WIRED. Means walk the talk, walk the

values, you take initiative. You show some initiative to get something done. You

focus on results and you have high energy.

JEFF GREENFIELD

When I need something, shampoo or toothpaste, I dont say

TOM RYANGo to CVS. (laughter)

JEFF GREENFIELDI had a feeling you might say that. (laughter) So youve given me the opportunity.Thats not what I say. I dont say Im going to Duane Reed, Im not going toWalgreens. Im going to the drugstore. Its not like people who will line up atStarbucks but not at a different coffee shop. So what do you do?

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TOM RYANNow thats a great question. We talk about it in our company all the time. Because Imean you can rattle off the drugstores that were here and have gone. I mean the onesweve acquired and others we havent. And there is a drugstore on every corner. Andwe always say were not going to win selling Tagamet and toothpaste. Our issue is

trying to be the easiest pharmacy and retailer for customers to use. And its about ourpeople. We think about being easy. We want you to think about CVS as I can go in, Ican get out. I can get good service, good price, and by the way, if I want to spendtime and talk to the pharmacist about some issues, I can talk to that pharmacist.

JEFF GREENFIELD

So when you want to have a store where the pharmacist takes time to talk to people,

how do you communicate that down from where you are, all the way down through

those many many many, what thousands of stores?

TOM RYAN

Our people in the stores are great. Our colleagues in our stores are great. They know

how to take care of the business. We need to make sure that we help them so they

dont have to jump over the hurdles and put too many hurdles in front of them about

around customer service. So, thats what we focus on and thats actually what we

have as part of our incentive.

JEFF GREENFIELD

Let me ask you one specific question, because CVS puts a lot of emphasis on, Im not

sure its the phrase, but youre not a drugstore but a health

TOM RYAN

Right.

JEFF GREENFIELD

Okay. So let me ask you an impolite question. Why should a health store be selling

cigarettes at all?

TOM RYANThats the great question. One that Im not going to answer. (laughing) No.

Well do $37 billion dollars in revenue as a company and cigarettes represent about

4% of our sales. And a fair amount of it in ancillary sales. We dont promote

cigarettes. We dont put cigarettes out in front. Its not self service. We have a special

program making sure that we train our store colleagues so they card people, making

sure theyre a ceratin age, but you know, the interesting, you can imagine at cocktail

parties, everyone has a story about I love your stores, but...theres this one particular

cashier who is a problem. Or so any time you go to a neighborhood party or an

industry event, someone will say to me, You should stop selling cigarettes. My

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question to the person is, If CVS stops selling cigarettes, would you change your

shopping patterns and come to CVS? And the answer is invariably No. So we

need were not trying to promote it, were not trying to extend it, but we need to

find a way to differentiate ourselves and until we do, we cant

JEFF GREENFIELD

Just competitively, you cant?

TOM RYAN

Competitively, we just cant stop.

JEFF GREENFIELD

It sounds, if I may say, that it makes you a little this is not this is a little

uncomfortable.

TOM RYAN

It is uncomfortable because its an issue that our people have talked about and its an

issue you know I was a former smoker and Id like to try to be able to get out of it,

but we havent found a way yet, to be quite honest.

JEFF GREENFIELD

I appreciate the candor. I do. Now once again were going to turn to our audience,

take a question or two from the students and other members of the audience.

FROM THE AUDIENCEGood evening, my name is Ryan Graves and Im a sophomore accounting major

within Howard University School of Business, residing at Fort , MD. And my

question is, with CVS being the leader in retail prescriptions and having revenue

exceeding $37 billion dollars, what was the most important innovative approach in

your opinion that your corporation has used to gain such a competitive advantage

over the more traditional pharmacy businesses and corporations?

TOM RYAN

Well I think we recognize, I guess, the convenience niche first in retail pharmacy.

And in addition to that, we have what we callits a pharmacy benefit managementcompany. So in addition to our retail stores, we also have a $3 billion dollar business

that specializes in specialty pharmacy, which would be drugs for organ transplant,

multiple sclerosis, unique diseases with unique drugs. And then we also have a mail

order business. So, in other words, Ill give you an example. We take care of all the

prescriptions for all Daimler Chrysler employees. We take care of all prescriptions for

Lockheed Martin employees. In addition to having stores in the area. So we try to

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have an integrated approach to pharmacy. And you know, to Jeffs point earlier,

thats our business. Thats our DNA. We dont think about groceries and we dont

think about produce. We think about pharmacy and thats our business.

JEFF GREENFIELD

Thanks for the question. I think we have one more.

FROM THE AUDIENCE

My name is Sonya Alice []. Im the Human Resources Director for SES America,

located in McClean, VA. My question tonight is on workforce management. With

you being the 7th largest retailer in the United States, with approximately 150,000

employees, a huge diverse workforce, how do you manage that workforce in support

of your corporate mission?

TOM RYANGreat question and to add to that 150,000, about 40% of those are part timers. So the

challenge that we have as an organization, is to ensure that all our folks understand

our mission. Understand what were trying to do. And the CVS Easy as our folks call

it now, is the filter that people use. What can we do to make the shopping experience

easy for our customers? So that can be right down to a cashier, it can go to a

pharmacist, it can go to the head of IT. They have to be using that kind of mission

statement as a filter for what they do every day.

JEFF GREENFIELD

Thank you. Ken Lewis will rejoin us in a few minutes, but first, lets get a guidedtour of the Howard University School of Business with MBA students, LaTanya

Clark and Jermal Moody.

SCHOOL TOUR PACKAGE(music) Hi, my name is LaTanya Clark. Hi, and Im Jermal Moody. And wereMBA students here at the Howard University School of Business.

We are so excited to have CEO Exchange with us here today.

So come and join us as we take a tour of one of the most prestigious, historically

black colleges and universities in Washington, DC. (music)

Howard School of Business was formally established in 1970. At that time, theschools faculty consisted of 12 members and now Howards School of Businessboasts of over 80 distinguished and published doctorate members.

Several top business publications have ranked the Howard School of Business at thetop of their list, including the Princeton Review, which ranked our MBA program #1

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for greatest opportunities for minority students, and #5 as having the mostcompetitive students. Howard maintains a very diverse and multicultural campus. Ahigh percentage of international students hail from the Caribbean, Latin America andAfrica.

One of our crowning jewels is our simulation, learning and research laboratory,designed to give our students an intellectual advantage in areas of finance andfinancial engineering.

I can sum up my experience at Howard University in one word that word isopportunity. Opportunity to build relationships with students and opportunity to buildrelationships with Fortune 500 companies all around the globe.

Well thats our tour. Thanks for joining us today.

Hey, its 3 oclock, I got to get to class. Ill see you later.

Gotta go.

JEFF GREENFIELDLets thank LaTanya and Jermal, along with the Howard School of Business with around of applause.

APPLAUSEJEFF GREENFIELD

So with their banks and drugstores popping up on corners seemingly overnight, Bank

of America and CVS are all about convenience. So for your convenience, weve got

both CEOs here together. So Ken Lewis, please come back and join Tom Ryan thistime.

APPLAUSE

JEFF GREENFIELD

Welcome back. Thanks for sticking around. Youre both CEOs with Fortune 100

companies and you both pursue an acquisition strategy, but theres another

comparison that weve talked about, that these folks might want to know about,

which is these folks are going for an MBA and the last time I checked, neither of you

pursued that course, so is your advice to these people drop out and start working?

(laughter)

KEN LEWIS

Actually, when I joined the bank, I had no idea of what I wanted to do. And people

said, well a bank is a good place to go, when you dont know what you want to do.

(laughter) And secondly, I planned to stay about two, three years, and then go get my

MBA. Now 37 years later, I havent done that, but that was my intention. No, I

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wouldnt tell somebody that. I would in this day and time, particularly in the financial

services industry and particularly in some segments, investment bank, and wealth and

investment management, thats in many cases, a ticket to get to the party. And so you

need the MBA.

TOM RYAN

Yeah, Id certainly agree with Ken. You know, some of this, youre not the master of

your own fate, and you dont have a road map. I was married in college, my fourth

year of a five-year program. So when I went out, I went to work and made money and

I always thought about going back to get my MBA but I never did. But I certainly

would encourage my children. I would encourage students who were in the MBA

program to certainly pursue that.

JEFF GREENFIELD

Okay so everybody can stay put for a while. (laughter) In terms of acquisition, itstrikes me that both of your companies may be running up against certain limits. In

your case Ken, there are regulatory limits in terms of what you can do. I think 10% of

U.S. deposits. And in your case, I think of the line that Alexander the Great wept,

because he had no more worlds to conquer. Where do you go from here to keep

growing?

KEN LEWIS

But if you think about Bank of America, we have 55 million consumer customers.

And many of them only have one product with us. And so our opportunity for growth

is not necessarily an acquisition or even building new branches. Its the embeddedopportunity to do more with our existing customer base and so thats the huge

opportunity for us. And by the way, you can grow through that 10% cap. You just

cant acquire through it.

TOM RYAN

We have about 15% of the prescription market in the country today and its a fairly

fragmented market, the pharmacy industry. If you looked at two top competitors

together, its only 30% share. So there are enormous amount of opportunities. You

know, we talk about acquisitions. We certainly acquire, but we also open up our own

stores and we open up about a store every 36 hours, a brand new store, one that wedidnt acquire. So were on an organic growth mode and acquisition mode and Ill

give you fact: theres 50% of the U.S. population lives within two miles of a CVS.

And I dont know why it cant be 75 or 80%. (laughter)

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JEFF GREENFIELD

I know one person in that population. She lives within 300 feet of about five CVS

stores. But thats a different story. (laughter) Some people have talked about the Pac-

Man approach to business. But surely there are, there are particular kinds of

judgments you make about whether an acquisition is right. So Im wondering under

what circumstances, even in this mode, have either or both of you said, No not that

one.

TOM RYAN

I say No a lot. I mean the old adage that some of the best deals you do are the ones

you dont do. It has to be we look at acquisitions, we dont look at acquisitions for

growth. We look to grow acquisitions. Its different than in plugging a business on. If

we cant grow that business, the Eckert acquisition, we bought in Florida and Texas,

obviously Florida and Texas has huge population growth, huge senior populationgrowth. The issue for us was to get into that market, but then grow it. So we dont

we really look at acquisitions, it has to be in the right market and it has to have the

right price and we have to be able to improve it.

KEN LEWIS

This will be hard for people to believe, but we have turned down a lot of deals also.

And it varies. It has to be a strategic fit, obviously, just to begin with. Secondly, price

is always an issue and then sometimes, we just havent liked the culture of the

company that we were looking at and if we cant have the combined company have

our culture, then we wont do it.

JEFF GREENFIELD

The baby boomers -- the first one is hitting 60 years old now.

TOM RYAN

We love that. (laughter)

JEFF GREENFIELD

And as I can testify at that point, certain things require medicine. All kinds of things

require medicine. So in some sense, isnt your growth problem solved by all thosefolks that had babies between 1946 and 1964?

TOM RYAN

Well were certainly in a growth industry. I mean the demographics are in our favor

and the winds at our back, as they say. Well were certainly in a growth industry. I

mean the demographics are in our favor and the winds at our back as they say, but at

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the end of the day you have to execute. Because the wind was at the back of the

companies that we acquired. And listen, in this business, Kens business, you have to

take care of your customers and take care of your people. Just to your point, you go

into that store thats 300 yards away, you dont care that we have 6,000 stores. Thats

our challenge.

KEN LEWIS

There are two winds at our back. One is the demographics just as Tom was

describing. In our case, its the opportunity for our wealth and investment

management group. That is, to get more investments and more retirement packages

into the company, serving our customers. The second one is, 80% of Hispanic

population is in our foot print, and thats going to be the fastest growing segment.

And its ours to lose because we still we bank about 50% of the Hispanic

population as we speak and so, thats a big, big focus for us and we know that if - we

will not get the growth rates that we want if we dont serve that market well.

JEFF GREENFIELD

I want to turn to a couple of questions. One now from our audience.

FROM THE AUDIENCE

Hi, my name is Kelly Osborne and I wanted to know as we move to a more

information age, what you guys are doing besides the things that are regulated and

mandated by the U.S. government to ensure that the virtual information that you have

on your customers is being protected?

KEN LEWIS

Trust is everything. I mean thats one of our competitive advantages against others.

Other industries is that our customers trust us. Best in class is not, is not cant be

what we strive for. Perfection is what we have to strive for in this regard.

TOM RYAN

We envision a world where youre walking around with a little card that has all your

healthcare information on it. I mean right now if you were hurt and you walked into

the hospital, they wouldnt know what drugs you were taking, what disease states you

had, what you were being treated for, which is ridiculous. I can walk into bank andthey know exactly what I have, but I cant walk into an emergency room. So at the

end of the day, to Kens point, I mean, to be a trusted healthcare advisor, is what we

focus on. Its the paramount issue that we deal with. But its going to be tougher as

we go forward and were going to have work on that.

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JEFF GREENFIELD

It seems to me that both of your companies, in some sense, are held hostage to forces

that you have nothing, you cant possibly control. I mean the obvious one with you-

and I know you know-its called the cost of prescription drugs. I know you are

heartily sickened about talking about the Canadian drug import question, because

youve been asked about it 700 times, but it was kind of interesting that you did kind

of break ranks and say this might be a good idea. So let me broaden it. If this

prescription drug program produces widespread confusion among, particularly among

seniors, it seems to me they take it out at the place where they go get the drugs. They

dont fly to Washington and yell at the FDA or the H whatever, they yell at you guys

right?

TOM RYAN

Right.

JEFF GREENFIELD

Now is there anything that you can do about this?

TOM RYAN

Well, we spend a lot of time trying to help the seniors cope with it. When the

Medicare program was put in place, one of the first calls I got was from my 85 year

old mother. And I said, Well what are you going to do with the program? And she

says, I was waiting to talk to you. Seniors are just totally confused on the program.

At the end of the day, was government was a classic case of government at work.

They were trying to do the right thing but it went when it went from legislation toregulation, it just got kind of lost and our main goal is, instead of wringing our hands,

were trying to help seniors. Were training our pharmacists. We have PCs in each

one of our stores, where seniors can come in and give us their list of medications and

we can recommend, tell them which are the best plans. But typically, as the

government would do, we cannot tell them they should use this plan. Because the

government says you cant do that as a pharmacy which Im not quite sure why.

The government with the Medicare program will be the largest payer of prescription

drugs now in the country. And when any time the government gets into your

business, I worry. And you know we grew up in a business that was regulated. Itwas the pharmacy business so you had the FDA and the Boards of Pharmacy and the

DEA, so that was not a problem. They understand our business. Its when people and

government get into your business that dont understand your business, so that

worries me.

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JEFF GREENFIELD

But in that realm, and I suppose to some extent, this is inevitable, as your companies

have grown, youve had your problems with public authorities. There have been civil

suits, there have been settlements. Youve had to disgorge money or pay back fines.

The argument that people like New York Attorney General Elliott Spitzer would

make, is look, Im all for capitalism, but we exist to enforce a level playing field and

fair rules. We want to make sure huge companies dont take advantage of people who

clearly are not in an arms length position to deal with you. Is that a misplaced

notion?

TOM RYAN

No, I dont think its a misplaced notion. I think its I just look at some of these

suits and some of these cases that are brought with a little jaundiced view. To me its

not coincidence that a fair amount of the Attorney Generals that are bringing cases

are running for higher office.

JEFF GREENFIELD

Okay. Fair enough. (laughter) Would you like to assent to that, Mr. Lewis?

KEN LEWIS

No, Im trying to separate my chair from (laughter). My issue personally, and I

guess my company, in many cases, is we have so many regulators, and what bothers

us is for one regulator or one entity to get into somebody elses domain and so, you

know, we have the OCC, the Federal Reserve and the FDIC regulating us, and then

we have a city attorney or state attorney coming and having their opinion of things,and I think that has to be straightened out, and thats the biggest issue that we have

and kind of along those lines, were a national bank. And so we dont mind tough

laws. We just want one.

JEFF GREENFIELD

If someone were to say, look, one of the things the government can do is to use its

bargaining power, which the current law forbids it to do, to keep prices down, use the

volume that it has, like any other purchaser, and I guess in your area, I can hear

people say, look, one of the things the government ought to be doing is, for instance

riding hard on a bank that say redlines. That wont extend credit to individuals orbusinesses because theyre in minority areas. Does that now that doesnt strike me

--either is unreasonable in either of those points.

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KEN LEWIS

Yeah, I agree. I mean theres certain things as a bank that we should be doing and

certain things that we should not. And actually I, the CRA our CRA activities and the

law itself I think is a great thing.

TOM RYAN

And I think the government I think free enterprise in the marketplace works. I

think if the government is buying the largest volume of prescriptions, they should be

able to negotiate.

JEFF GREENFIELD

You do?

TOM RYAN

I have no issue with that at all.

JEFF GREENFIELD

Got another question?

FROM THE AUDIENCE

My name is [Howard student] and I am junior finance major from []. And Ken, my

question is centered on China. Do you see the Chinese government allowing foreign

investors to acquire controlling stakes in both the regional and national commercial

banks? And secondly as well, do you guys intend to get a broker/dealer license

considering that your major competitor has just done so?

KEN LEWIS

Yeah the broker/dealer license we probably will not do. We have an agreement with

China Construction Bank, the bank that we have a 10% interest, that we will not

compete with them directly particularly on the consumer side. But with regard to the

ownership, I think it is probable that some of the smaller banks, that here will be the

government will allow them to have 100% or have foreign entities on 100%.

JEFF GREENFIELD

Thank you. Is international something that that is, beckoning in a big way?

KEN LEWIS

No, I think China was just the obvious opportunity, because its China and and we

saw a good opportunity to invest in a bank, and we thought at a very early stage and

hopefully make a lot of money, and then also, I have a strategic relationship with

them.

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JEFF GREENFIELD

We have one more from the audience on this go around. Please.

FROM THE AUDIENCE

Thank you. Good evening. My name is []. I am a junior information systems major

from [] here at Howard University School of Business. As the trend of overseas

outsourcing grows, I wonder what in your opinions the responsibility for maintaining

employment opportunities here in the U.S. Does that responsibility lie with your

employees? In terms of constantly enriching their skill base? Or does it lie with the

employers in terms of job enrichment and job enlargement? Or does it lie with the

government in terms of legislation? To protect jobs here at home?

APPLAUSETOM RYAN

I think it lies with the first two. Not the third. (laughing)

JEFF GREENFIELD

Were you surprised? (laughter)

TOM RYAN

At the end of the day if youre with a winning company and a profitable company,

thats the best career you can have that creates opportunities. So whether its

whether companies are looking to outsource certain pieces of their operation so thatthey can grow other pieces, thats just a fact of life. And we have to compete globally.

And at the end of the day you want to be with a successful organization.

JEFF GREENFIELD

If I were to call Bank of America with a question, will I get somebody in Bangalore?

Am I likely to?

KEN LEWIS

Not likely, Not likely, but its possible.

JEFF GREENFIELD

So how much do you outsource?

KEN LEWIS

We have about 2000 people now in India and I look at it holistically and if you do

that, then you can see some give and take. Were opening a hundred branches

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probably this year. Were adding some two or three hundred premiere bankers. Were

adding to our IT staff in the U.S. And we may outsource a thousand jobs to India.

But in net, because were able to do that, and save money we can invest in our other

businesses and grow those businesses. So if you look at the net, the 1000 people

investment in India, allows us to do so much more because we can do it more cheaply

and more effectively there. So always when you look at these things dont just isolate

them but look at the whole picture and it really becomes a pretty good picture.

JEFF GREENFIELD

Were going to wrap this up with an effort to kind of expand everybodys horizons

and we call this the lightening round because these are very short questions that

require short answers that are almost free association. So, here we go. When was the

last time you got really angry and what, if anything, did you do about it at work?

(laughter)

TOM RYAN

Actually this afternoon before I flew down here. It was an internal situation and got

angry and went in my office, thought about it and then went back out and was still

angry. (laughter)

KEN LEWIS

Not that long ago, I had wanted to come to a conclusion on an issue and have a

decision made and we were still meeting on it and that engendered bureaucracy and

big is bad kind of things and that really bothered me.

JEFF GREENFIELD

And you handled it how?

KEN LEWIS

A decision was made very quickly. (laughter)

JEFF GREENFIELD

Okay do you ever call in sick? Can a CEO do that? Its a beautiful spring day and you

say I love my job, I love my work Im devoted. Today I just want to enjoy it. Can you

do that?

TOM RYAN

You can do it. Who would I call into? (laughter)

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APPLAUSE

JEFF GREENFIELD

This is why Ill never be a CEO. (laughter)

KEN LEWIS

For 37 years, Ive had the privilege of getting up every day and wanting to go to work

.I mean I love what I do and ...

JEFF GREENFIELD

A place that youve been to, a vacation that really sticks in your mind as one of the

most memorable places youve ever seen?

TOM RYAN

My wife and I went to China with Ron Zeigler, who was Richard Nixons press

secretary. And so we saw China a little different than some others. So that was amemorable experience because Nixon was revered in China because he opened it

obviously up to the West.

KEN LEWIS

Cap Ferat, South of France.

TOM RYAN

The bathing suits? (laughter) Was it the bathing suits?

JEFF GREENFIELDId like you to try and finish the sentence: Before I get too old or infirm, I really

want to _________.

TOM RYAN

Break 70 on the golf course. (laughter)

JEFF GREENFIELD

I should have known that.

KEN LEWISEnjoy golf. (laughter)

APPLAUSE

JEFF GREENFIELD

And if you had one last meal, what would it be and where would you like to eat it?

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KEN LEWIS

Pepperoni pizza, South of France. (laughter)

TOM RYAN

Um, KFC with my family. (laughter)

JEFF GREENFIELD

Im expecting these nine course meals at Televant, or Per Se and I get hot dogs,

pepperoni pizza, and KFC, which may be more insight into the mind of a CEO than

anything else Ive heard (laughter). I dont know. Or they just figure its one last

meal, the hell with the cholesterol. Thats my theory. (laughter) Anyway, as much as

wed like like to follow your lead and acquire another hour or so, PBS doesnt work

that way. So we have to close our doors for the day. My deep thanks to both of you

gentlemen, Ken, Tom, from the Bank of America and CVS for sharing these new

developments on Main Street with us. And if this meeting of the minds has helpedcontribute in any way to the worlds marketplace of ideas, thats the business of CEO

Exchange. Im Jeff Greenfield. Thanks so much for watching. Appreciate it. Take

care.

APPLAUSE

CEO EXCHANGE is produced by WTTW National Productions in association withBusinessWeek and is exclusively underwritten by the Society for Human ResourceManagement in Alexandria, Virginia.

2006 Window To The World Communications, Inc.All rights reserved. Unauthorized reproduction or transmission is a violation of applicable laws.

Exclusively underwritten by: Produced by:

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Ceo Exchange Transcript Episode 407